Expect to increase margins by 30bps to 6.80%: Capital First

V Vaidyanathan, chairman and managing director, Capital First, says he expects profit to outpace net interest income (NII) growth and targets a 30 basis point (bps) hike in margins.Below is the verbatim transcript of V Vaidyanathan's interview with Anuj Singhal and Ekta Batra on CNBC-TV18.Ekta: It has been a good quarter for you, net interest income (NII) up 40 percent, profit up 50 percent this quarter. What led to the NII growth?A: The loan book of the company last year same time was Rs 11,000 crore. This year it has gone to Rs 13,600 crore, which is a growth of 23 percent. This has translated directly to an increase of NII and fee income, what we call the core income has grown. So that increase has translated directly to bottomline which has grown from Rs 27 crore to Rs 41 crore.Anuj: Do you think this kind of growth rate that you have seen is sustainable and at the same time by not impacting your asset quality?A: This is a large market. By our estimates, the size the market we are playing in these three-four lines of business is about Rs 1 lakh crore. We are still a small part of the business. So for us to grow about 25 percent per year, for the next three-four years continuously, is pretty much fair expectation because of operating leverage, we expect the profit to outpace this growth.Ekta: You expect the profit growth to outpace in terms of the NII growth?A: That is correct. We expect the topline to grow by 25 percent and bottomline to grow by greater percentage than that.Ekta: What is leading to this 23 percent loan growth in the retail segment? Where are you lending most, any sort of incremental segments that you have added on all geographies?A: About 86 percent of Rs 13,600 crore is retail and within that about Rs 7,500-8,000 crore, which is the large portion of the business is lending to small entrepreneurs against pledge of property. That is the big business for us, that is growing by about 20 percent. We also lend to smaller entrepreneurs who want to buy or maybe consumers who want to buy a television or a refrigerator or a two-wheeler so on and so forth which is largely an underserved market that business of course we are growing at a larger pace because that is coming off a smaller base. So all in all, this 23 percent is composed by these three-four segments.Ekta: What was cost of funds this quarter for you and what were your net interest margins and spreads and what might your guidance be on the same?A: The cost of funds has been coming down over the last two-three quarters because of what is happening to overall interest rate movements in the country. So our cost of funds right now is on a blended basis of probably closed to about 10 percent or slightly lesser than that. On net interest margin (NIM) basis we are about 6.5 percent. This was about 30 bps less same time last year. In other words, it has increased by 30 bps over the last one year.Ekta: Quarter-on-quarter (Q-o-Q)?A: Q-o-Q it is pretty much maybe about 5-6 bps higher over the last quarter but we think that even over the next maybe year or so, this should be very much sustained basically about 40 percent of our loan book is fixed rate and therefore as and when the interest rates are coming down, we should see some benefit of that coming through to our NIMs and bottomline.Anuj: If you could give us a trajectory over the next three-four quarters what kind of rates should we assume?A: On the margins front, we should expect a slight uptick. This 6.5 percent should only grow from here. If you take a one year forward, it should increase by about 30 bps or so.